Why Do Low Income Inequality

1. Introduction & Background Information

Income inequality is prevalent. The extreme gap between the rich and poor simply forces all the poor into the endless cycle of poverty—putting them in endless pain. “The poor will be with you always” (Bible, Matthew 26:11). As long as income inequality prevails the world, poverty is inevitable. It has always been there with us no matter how prevalent. It is possible for economic policies to decrease the poverty rate, but it is nearly impossible to completely get rid of it. According to WHO, World Health Organization, poverty is defined as a term of low income. There are two types of poverty—absolute poverty and relative poverty. Absolute poverty is when people cannot afford their necessities of life

It is highly likely that there will be disincentive effect, discouraging the workers from working hard (Economics Help). Since the workers are aware of the fact that a huge proportion of their income will be taken away anyway, there will be less incentive for them to work hard. Also, such progressive tax can discourage the poor from struggling to climb the ladder. The mere fact that they will be provided with insurance and protection from the government will eliminate the need to get out of their current status. Nonetheless, other economists argue that the disincentive effect is highly unlikely to occur. Known as the income effect, increased progressive tax will in fact “reduce incomes and this may encourage people to work more, to maintain their income” (Economics Help). This assumption is trustworthy in that workers are known to have adjustment skills at working environments because of the motivation that they have to earn their

In the job market, the increase in minimum wage will cause a shortage, making it less profitable for companies to employ many workers. This will result in higher unemployment. In response to such criticisms, the government has come up with a concept called the “voluntary living wage,” which is an “attempt to encourage firms to pay higher wages” (Economics Help). A living wage is an “hourly wage rate considered the minimum level to provide the essentials of modern living” (Pettinger, 2012). To put it into simpler words, a living wage is an adjusted type of wage that takes into account the average price level of the country. London is one of the countries that is currently applying a voluntary living wage set at £8.30. As the living wage campaign prevails, the increase in national minimum wage will be justified. This will eventually force the companies to cut the salaries of highly-paid employees and afford more money for lowest paid workers. Guy Stallard, head of Management at KPMG Europe, said: “We have found that paying the living wage has benefits on both sides, as increasing wages has reduced staff turnover and absenteeism, while productivity and professionalism have subsequently increased.” This proves that there is a high possibility of the living wage campaign acting as an incentive for companies to consider responding positively—which means not to significantly reduce